Wealth-tax debt deductibility turns on existing obligations: accrued tax liabilities may qualify, but contingent gratuity claims do not.

For wealth-tax purposes, an existing obligation on the valuation date may qualify as a debt even if payment or exact quantification occurs later, so advance tax already demanded but paid after that date was treated as deductible. Estimated business profits tax, being referable to an accrued obligation from past chargeable periods, was also considered a debt owed; however, estimated income-tax for the current year was not deductible because no operative charge had arisen on the valuation date. Gratuity liabilities dependent on future contingencies, such as retirement or termination events, were treated as contingent and not as existing debts, and were not deductible in computing net wealth.

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Issues: (i) Whether the last instalment of advance tax paid after the valuation date was an admissible deduction in computing net wealth; (ii) whether the estimated liabilities for income-tax and business profits tax were deductible as debts owed on the valuation date; (iii) whether the gratuity liability arising under the Industrial Court awards was deductible in computing net wealth.

Issue (i): Whether the last instalment of advance tax paid after the valuation date was an admissible deduction in computing net wealth.

Analysis: A liability need not be presently payable to constitute a debt; for wealth-tax purposes, an existing obligation on the valuation date is sufficient even if quantification or payment follows later. The notice of demand had created an existing obligation before the valuation date, and the amount was actually paid thereafter.

Conclusion: The amount was an admissible deduction and the issue was answered in favour of the assessee.

Issue (ii): Whether the estimated liabilities for income-tax and business profits tax were deductible as debts owed on the valuation date.

Analysis: The estimated business profits tax liability represented an existing obligation arising from past chargeable periods and was therefore allowable as a debt owed. The estimated income-tax liability for the current accounting year was not deductible because no income-tax liability had been imposed on the valuation date, the Finance Act being the source of the operative charge. Such a liability was neither a debt owed under section 2(m) nor an adjustment having a bearing on valuation under section 7(2).

Conclusion: The business profits tax estimate was deductible, but the estimated income-tax liability was not, and the issue was answered partly in favour of the assessee and partly in favour of the Revenue.

Issue (iii): Whether the gratuity liability arising under the Industrial Court awards was deductible in computing net wealth.

Analysis: The gratuity claim depended on future contingencies such as death, retirement, resignation, incapacity, or termination in specified circumstances. It was not an existing debt on the valuation date and did not bear on the valuation of the business assets under the balance-sheet method. It was also not shown as a liability in the balance-sheet.

Conclusion: The gratuity claim was not deductible and the issue was answered against the assessee.

Final Conclusion: The reference was disposed of with the advance-tax instalment and the business profits tax estimate allowed as deductions, the estimated income-tax liability disallowed, and the gratuity claim rejected.

Ratio Decidendi: For wealth-tax purposes, a debt includes an existing obligation to pay money even if the amount is unascertained or payable in futuro, but not a contingent liability; estimated income-tax was not deductible before the Finance Act created the operative charge, whereas liabilities arising from past accrued obligations could be deducted.

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